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The Federal Reserve’s data-dependent philosophy is being tested in terms of what data to trust. The most recent Beige Book report presented a very different picture from what the latest monthly government economic reports show. The Beige Book, considered a ‘boots on the ground, real time’ summary of activity across the twelve Federal Reserve districts, paints a picture of modest economic growth, where consumers may have exhausted their savings and are relying more on borrowing to support spending. Retail spending outside of tourism continued to slow, especially on non-essential items. Businesses are struggling to pass along price increases. Hiring has slowed in some areas, but most districts indicate ongoing imbalances due to a lack of skilled or available workers. Labor cost pressures remained elevated in most districts.
The anecdotal comments from business managers are in sharp contrast to July’s strong retail sales report and several reports suggesting a softer labor market. Recent CPI, PPI, and PCE reports pointed to continued easing price pressures amid signs that the labor market and wages are cooling. Atlanta Fed GDPNow is forecasting more than 5% growth in the third quarter. The Fed will be scrutinizing forthcoming economic data for August to glean a clear picture of economic activity before making a rate decision later this month.
Key Indicators this Week
FedSpeak – With less than two weeks to the next FOMC meeting, Federal Reserve officials took the opportunity to share their opinions on what the Fed’s next move should be. Here are some of their thoughts:
Federal Reserve Governor Christopher Waller described last week’s information as “a hell of a good week of data” that showed the job market beginning to soften and inflation moving in the right direction. Waller said policymakers can afford to “proceed carefully” with interest-rate increases and there is “nothing that is saying we need to do anything imminent anytime soon.”
Federal Reserve Bank of Cleveland President Loretta Mester suggested the central bank may need to raise interest rates further but did not offer an opinion on when this might happen. “We don’t want to tighten monetary policy too much and cause unnecessary pain to the economy,” Mester said. “But we also don’t want to tighten monetary policy too little.”
Federal Reserve Bank of Boston President Susan Collins believes the Fed needs to hold rates at a restrictive level for some time. Collins admitted that “while we may be near, or even at, the peak for policy rates, further tightening could be warranted, depending on the incoming data.” Collins said it is too early to say if inflation is on a sustained path to 2%.
ISM – The measure of activity for both the goods and services industries rose in August to the highest levels since February. While the manufacturing gauge improved, it remained in contraction territory for the 10th month. Prices paid rose for both major sectors, as did employment. Goods producing companies are seeing inventories shrink as consumer spending remains strong. Thirteen service industries reported growth in August, led by real estate, accommodations and food services.
Sarina Freedland – Senior Investment Officer
Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. This is for informational purposed only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.
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